Exactly 5 years ago, a loan was taken out that was to be repaid by level annual instalments made in arrears over a 15-year contract. Given that the instalments (of capital and interest) were set to £883 per annum based on a 8% p.a. effective interest rate on the borrowing, calculate the following: (i) The initial amount of loan taken out on this contract. (ii) The amount of loan outstanding immediately after the instalment now due is paid. (iii) It is agreed that, immediately after the instalment now due, the rate of interest charged on the outstanding loan is reduced to 5.5% p.a. effective. Consequently, the same annual instalments will be payable for a revised remaining term and also with an amended final payment. Thus, find the following: (a) The revised remaining term of the loan outstanding in whole years. (b) The amount of the amended final payment. (c) The interest component of the amended final payment.
Exactly 5 years ago, a loan was taken out that was to be repaid by level annual instalments made in arrears over a 15-year contract. Given that the instalments (of capital and interest) were set to £883 per annum based on a 8% p.a. effective interest rate on the borrowing, calculate the following: (i) The initial amount of loan taken out on this contract. (ii) The amount of loan outstanding immediately after the instalment now due is paid. (iii) It is agreed that, immediately after the instalment now due, the rate of interest charged on the outstanding loan is reduced to 5.5% p.a. effective. Consequently, the same annual instalments will be payable for a revised remaining term and also with an amended final payment. Thus, find the following: (a) The revised remaining term of the loan outstanding in whole years. (b) The amount of the amended final payment. (c) The interest component of the amended final payment.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
PLEASE, WRITE THE SOLUTIONS ON PAPER, EXPLAINING THE ENTIRE PROCESS, THE ONLY AND CORRECT ANSWERS ARE FOR (i) L0 = £7,558 AND (ii) L5 = 5,925 AND (iii) a) n = 8.6016 ---> n = 9 years, b) X = £536.86, c) C9 = £508.87 ---> I9 = 27.99
Transcribed Image Text:Exactly 5 years ago, a loan was taken out that was to be repaid by level annual instalments made in
arrears over a 15-year contract. Given that the instalments (of capital and interest) were set to
£883 per annum based on a 8% p.a. effective interest rate on the borrowing, calculate the following:
(i)
The initial amount of loan taken out on this contract.
(ii)
The amount of loan outstanding immediately after the instalment now due is paid.
(iii)
It is agreed that, immediately after the instalment now due, the rate of interest charged
on the outstanding loan is reduced to 5.5% p.a. effective. Consequently, the same annual
instalments will be payable for a revised remaining term and also with an amended final
payment. Thus, find the following:
(a) The revised remaining term of the loan outstanding in whole years.
(b) The amount of the amended final payment.
(c) The interest component of the amended final payment.
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